Hello! I'm struggling with questions 2, 3, and 4 at the bottom. I would appreciate any help! MARK Partners is considerin

[answerhappygod]

Hello! I'm struggling
with questions 2, 3, and 4 at the bottom. I would appreciate any
help!
MARK Partners is
considering buying a service-oriented business at the end of 2019.
Selected income statement and balance sheet items are provided
below. MARK Partners expects revenue to grow annually at 20%. We
assume that SG&A, AR, Inventory, CAPEX and Current Liabilities
stay the same in dollar terms.
Assume a tax rate of 33% and
transaction fees of $1mm. Since this is a service-oriented
business, D&A (Depreciation and Amortization) is not included
when computing gross profit.
They have negotiated
an LOI to buy the business at 7x times EBITDA and in a worst case
scenario expect to sell the business eventually at 5.5x. In
addition they have lined up financing. Selected transaction capital
sources are provided below. MARK Partners intends to use the
maximum leverage available. A cash sweep is used to pay off
debt. The acquisition and disposition of the business is structured
a cash-free / debt-free transaction.
NOTES: (i) if you need to make
assumptions, please state them and proceed, (ii) to answer the
questions below we think it is helpful to create an income
statement and cash flow statement of the business (and potentially
a balance sheet), (iii) we assume that the seller delivers a
cash-free balance sheet and that the existing debt is paid off by
the seller.
Selected Income Statement Items
Item
2019 Close (dollar amounts in
millions)
Revenues
$50
Gross Profit Margin
20%
Annual SG&A
$4
- Salaries
$2.4
- Rent
$0.2
- Other Expenses
$1.4
Selected Balance Sheet Statement
Items
Item
2019 Close (dollar amounts in
millions)
Existing Debt
- Type
Revolving Credit Facility
- Amount
$10
- Annual Interest Rate
10%
Current Liabilities
$0
Cash
$2
Accounts Receivable
$20
Inventory
$10
Annual CAPEX
$2
PP&E
$10
Depreciation
- Schedule
linear
- Period
5 years
Shareholder’s Equity + Retained
Earnings
$10
Selected Transaction Capital
Sources
Item
2019 Close (dollar amounts in
millions)
Term Loan
- Amount
$2
- Annual Interest Rate
10%
- Term
1 year
- Amortization Schedule
straight line
Revolving Line of Credit
- Advance Rate on Receivables
80%
- Advance Rate on Inventory
50%
- Advance Rate on Fixed Assets
70%
- Annual Interest Rate
10%
- Amortization
None
Sub-Debt
- Amount (EBITDA Multiple)
1x
- Annual Cash Interest Rate
0%
- Annual PIK Interest Rate
20%
- Amortization
balloon payment
Seller Note
- Amount
$2
- Term
1 year
- Annual Interest Rate
0%
- Amortization Schedule
straight line
Questions